Morocco receives $275 million in Solidarity Fund against Catastrophic Events
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A parametric insurance pool, facilitated by reinsurance broker Gallagher Re, paid out $275 million to Morocco’s Solidarity Fund against Catastrophic Events (FSEC), responding to the 7-magnitude earthquake that rattled the Al-Haouz region on September 8th, 2023, reports Middle East Insurance Review.
The insurance broker confirmed last year that it was in touch with the Moroccan government and reinsurers to determine the extent of the losses incurred following the seismic event, according to Insurance Insider.
Parametric insurance is a policy that mitigates the financial impact of severe weather catastrophes like tropical cyclones, earthquakes, and excessive rainfall, which can affect entire countries. In addition, they provide instant reimbursements when a loss happens and a policy is activated.
The devastating seismic event that occurred in Al-Haouz, with a magnitude of 7 on the Richter Scale, caused significant human and material damage in several areas of the Kingdom, falling within this insurance category.
Instead of assessing the actual damage or loss, parametric insurance triggers payouts upon the fulfillment of predefined parameters, such as the magnitude of an earthquake or the wind speed of a hurricane.
The parametric solution is intended to provide coverage for uninsured individuals in the event of an earthquake, and it is designed to deliver a quick payout as the trigger is based on the Modified Mercalli Index (MMI).
In October 2023, Insurance Insider indicated that the Moroccan government may receive a further insurance pooling scheme covering the Moroccan earthquake risk providing up to $1 billion in coverage. However, it will only be entitled to a partial payout due to its particular conditions.
In 2020, the FSEC initiated a parametric insurance contract with Gallagher RE, marking the first such initiative in Africa.
This agreement targeted earthquake coverage, particularly for uninsured properties and their owners. Over 20 reinsurers, led by major global players, were engaged to provide coverage through Gallagher Re.
In 2023, the estimated direct economic cost of natural catastrophes (direct material damage and net losses due to business interruption) worldwide, including the earthquake in Morocco, was $357 billion.
Approximately $123 billion of this total was covered by the private insurance market ($110 billion) and public insurance entities ($13 billion). This means that the portion of event costs not covered by insurance amounted to 66%, or $234 billion, according to Insurance News.
The most economically costly event was the earthquake in Turkey and Syria in February 2023. This event resulted in an economic loss totaling $46.2 billion, with $6.1 billion covered by insurance.